Wednesday, April 29, 2015

Standard
and Poor’s report that 2015 will be worst in history for bank fines for
outright criminality!

According to a report by Standard & Poor’s, Royal
Bank of Scotland, Lloyds, HSBC and Barclays will pay more in fines for
mis-selling (institutionalised fraud) and market manipulation in 2015 than in
any year to date.

S&P predicts that the big four’s bill for misconduct
fines and compensation for PPI and interest rate product mis-selling will hit
almost £14bn this year.

RBS, HSBC and Barclays are still expecting to be hit with
fines for foreign exchange manipulation this year, while RBS is due to receive
a multi-billion pound fine for mis-selling mortgage-backed securities.

S&P believes that this will be the biggest year yet
for litigation fines, meaning a record combined pay-out from RBS, Barclays,
HSBC and Lloyds. The four banks have borne £42bn in conduct and litigation
charges in the last five years, but can expect £19bn more in the next two,
according to S&P.

Yesterday’s Daily Telegraph Business section ran a
shocking story that not only confirmed these figures, but also set out the
statistics for financial criminality in all the British banks for the past 5
years.

In it he notes that S&P now believe that bank fines
are now a ‘way of life’.

The statistics for these fines and the crimes they
represent make for sorry reading, and the list below identifies the worst
offenders and the crimes they committed.

Before reading, reflect, all these offences were admitted
from the start – the banks effectively pleaded guilty to these crimes without
any contested trials. This is a level of criminality which is so vast and so
damaging that I believe the next Government needs to seek a Royal Commission to
enquire into this level of blatant thieving.

If crime of this level of seriousness was being admitted
in any other business of public sector industry, the Government would be calling
for major anti-crime initiatives, police task forces would be deployed, and
heads would be rolling across the sector, and people would be going to prison.

1. UBS: £233,814,000 (FX rate fixing)

This huge,
nearly a quarter of a billion pound-fine is actually a 30 per cent discount
because all the five banks involved in the forex scandal pleaded guilty early
in the investigative process. Combined with its fine from US financial regulator
the Commodity Futures Trading Commission (CTFC), its total fines were a massive
£503m.

2. Citibank: £225,575,000 (FX rate fixing)

Much like
UBS and the other banks involved in the forex rate-fixing scandal, Citibank rolled
over early in the case. It was also received a £194.6m fine from the CFTC.

3. J.P MorganChase: £222,166,000 (FX rate
fixing)

This bank
has featured almost every year for the past five years. However, this is the
largest fine the bank has ever received, with combined total fines of £417m
over the scandal, including £195m from the CFTC.

4.RBS: £217,000,000 (FX rate fixing)

RBS total
fines over the forex rate fixing scandal were £399m including £182m by the
CFTC.

5. HSBC: £216,363,000 (FX rate fixing)

HSBC has
confirmed it has set aside $378m (£249m) aside for fines - although combined
with penalties from the US regulator, HSBC’s total over the rate fixing scandal
hit £389m.

6. Lloyds and Bank of Scotland: £105,000,000
(Libor)

2014’s
other major financial scandal was Libor, where several banks (Lloyds among
them) colluded to fix the London Interbank Offered Rate (Libor) - the rate at
which banks lend to each other.

Barclays
isn't the only bank to feature twice on this list- but it does so while also
being investigated for both the Libor and forex - more fines are expected to
follow. The bank was fined by the FCA in September when it failed to protect
funds a client had entrusted to them in custody.

9. HomeServe: £30,647,400 (mis-sold insurance
policies)

The only
non-bank to make the top 10 this year HomeServe, which was slapped with a
massive £30m fine after it was found it had not only mis-sold insurance to its
clients, but also failed to investigate claims in a timely manner.

10. Barclays: £26,033,500 (failing to manage
conflict of interests)

What these figures demonstrate is an era of
Organised Crime on a hitherto unimaginable scale. It is clear that these banks,
in order to maintain the level of revenues they required to support their
over-inflated share prices, had to engage in wholesale criminality to make
their numbers.

How is it that no-one has gone to prison for these
crimes. How is it that bank senior executives have not been called to account?

Every time we see a Parliamentary Committee
sitting in judgement on these creatures, we see them slipping, sliding, evading
the questions, sometimes being economical with the truth, sometimes downright
lying, but never any question of anyone being required to resign.

While these statistics reflect an unacceptable
level of organised crime within these banks, they also reflect an almost
complete absence of any kind of pro-active activity on the part of the regulators.

The role of all law enforcement agencies, (and
financial regulators do perform a policing function, no matter how much they
may deny it and seek to wriggle out of their responsibilities for ‘policing’
the market), is to prevent crime in their market, industry or social sector.

Crime prevention is a pro-active science,
where those charged with the duties of regulating the market should be adopting
integrated and pro-active techniques and strategies to identify and disrupt
such activities in the market, in the first place.

Waiting until the horse has bolted and the cat
is out of the bag (how I do love a mixed metaphor), is futile. It means that
the regulators are always responding after the event, and always too little,
too late!

These latest statistics must be a clarion call
to Government, because these fines are being loaded on to the shoulders of the
shareholders, and they are not impacting on the most egregious criminals
themselves, the banks and their management.

We simply cannot go on watching this pantomime
being played out, where fines, the size of which would pay to support the NHS
for years to come, are being levied against criminal enterprises who show no
signs of conforming to law.

As a matter of course, any bank director whose
institution is fined sums of this magnitude should be facing the wrath of the
English Courts as well as the demands o out-of-pocket shareholders.

The SFO and the City of London Police should be
harmonizing their approaches to these criminal allegations, and should be
working out a list of those they would wish to interview.

In no other walk of life would such dishonest and
egregious business practices be tolerated.

This must now become a priority for Government
– It already is an electoral issue for me!

Tuesday, April 28, 2015

HSBC
has threatened to relocate its headquarters outside the UK, in a move promoted
by the Chairman, Douglas Flint, in response to "regulatory and structural
reforms", including the requirement for banks to separate their investment
arm from the retail divisions, which was instituted after the 2008 financial
crash.

The
bank has also been hit by the UK bank levy, which last year cost it 1.1 billion
US dollars (£730 million), up 200 million US dollars (£130 million) in 2013. Flint's
announcement sparked a claim that the "regulatory pendulum has swung too
far".

Flint
disclosed the review at the company's AGM in London, where the board faced a torrid
time from angry shareholders over the potential move. They were also castigated
for a series of financial scandals that have engulfed the bank, marking it out
as one of the most egregious financial mafias operating out of the UK.

One
investor, Michael Mason-Mahon, said: "Which country are you likely to go
to? How many countries have you not committed illegal and criminal behaviour
in?"

These
are, rightly, very difficult times for HSBC, and its aggressive and pompous
response to legitimate international concerns at its concerted organised criminal
behaviour, does not indicate that they have learned any lessons from their
wrong-doing.

OK, so the
chairman of HSBC has admitted his shame at the “horrible reputational damage”
the bank has suffered following the revelations of the systematic aiding of tax
avoidance at its Swiss subsidiary, but he has refused to take personal
responsibility for the failings.

I mean,
he was only a very senior director of this major bank at the time, but this
still doesn’t mean that he feels he should accept any responsibility.

Douglas
Flint, who was finance director at the time HSBC took over the Swiss
subsidiary, infuriated members of the Treasury select committee by blaming the
failings at the Swiss unit on local managers and said that the secrecy
surrounding banking in the country made it difficult for him to have a direct
line of sight of what has happening at the bank.

If that
was the case, why did he not demand access to the information and require it to
be shown to him, if he felt he was in charge of business conduct he could not
properly identify?

Flint,
who has been chairman of the bank since the end of 2010, said: “I believe in
personal accountability and I do believe people should be held responsible for
what they have direct oversight over when they have failed”.

OK, fine,
all well and good, but how does he avoid the allegation that the overwhelming reason
he did not ask to see the evidence identified was because he did not want to
see it for fear it would implicate him in unacceptable activities which he
would then have had to disclose to British financial regulators and law
enforcement agencies?

While he
said he felt “very ashamed” of events at the bank, he said he would not forfeit
past bonus payments in response, telling MPs: “I don’t feel that proximate to
what was happening in the private bank.”

Hmmmm,
interesting weasel word that ‘proximate’. He should have known what was going
on, he should have engineered greater proximity, how else could he have
exercised his duties and responsibilities as a senior director?

And what
about his noble Lordship, Lord ‘See No Evil, Hear No Evil’ Green, an ordained
Tory minister, who has repeatedly refused to answer questions in public about
the scandal – citing a “point of principle”.

Flint
added: “Most accountable, I think, are the management in Switzerland. It’s very
difficult for people outside Switzerland to get any access to the detailed
account-level information in Switzerland. That’s something only the management
on the ground can have access to for all the privacy and secrecy reasons...”

With very
little respect, that is not good enough! As Chairman, you are bloody well entitled to
know, you ought to know and you should have demanded to know. Not asking taints
you and your actions deeply, you are complicit sir,!

Having
bamboozled the Parliamentary Select Committee, and not being likely to face any
kind of investigation from the FCA, it would seem that HSBC Board members may
feel that they have avoided the worst kind of allegation which would under most
other circumstances have caused resignations.

Directors
of the kidney of HSBC men do not rise to their exalted heights by readily
admitting their culpability!

So,
instead of adopting a more humbled stance and expressing contrition at the way
in which they and their senior executives have behaved in recent years, they
have behaved like a spoilt child, thrown an enormous hissy-fit, and started to
threaten to relocate their non-retail business to a jurisdiction where they won’t
have to comply with a series of regulations designed to make their risky
business activities, less likely to bring the entire financial house down, in
the event of an adverse market reaction.

What
this demonstrates is that the basic commercial culture of HSBC is designed to
avoid as many prudential regulatory requirements as possible, because,
presumably, they get in the way of the bank’s ability to make money, quickly,
easily and without too many awkward questions being asked!

The
reason we have bank regulations is to keep the banks honest, or as honest as it
is possible to get. The aim is to ensure that they do not have a sudden rush of
blood to the head and run out and stick the entire Treasury reserve on red at
the casino in Monte Carlo, or short every trade on the New York Stock Exchange
Big Board in an attempt to undermine the market.

Most
banks know this, and despite having spent a lot of money with their lawyers and
PR advisers trying to oppose these regulatory changes, they will grudgingly
fall in line in time.

Not
so HSBC it seems.

Well,
frankly, if HSBC wants to relocate its HQ to some Asian centre, good luck to
them and good riddance.

The
reason why I suspect the move is going to be very difficult to achieve is
because I seriously doubt that many of the senior executives’ wives will be
very happy about relocating to Hong Kong for the foreseeable future, and live
under the benign control of the PRC.

Can
you imagine what it will be like for these gilded and privileged individuals to
be forced to move out of their Notting Hill enclaves and take up residence in
some crowded Hong Kong high rise apartment? I mean there is a limit to the
amount of Sushi and lemon chicken one can consume!

By
setting this rabbit running, HSBC have made a strong public statement that they
have no interest in doing business in a regulated business environment and are
about to engage in an exercise in regulatory arbitrage.

They,
like other banks, are beginning to discover that they cannot make the same
level of profit working in a firmly regulated financial arena, so they must
look around for a less-regulated environment, where they can engage in their
anomic conduct to their heart’s content.

About Me

Having spent my career dealing with financial crime, both as a Met detective and as a legal consultant, I now spend my time working with financial institutions advising them on the best way to provide compliance with the plethora of conflicting regulations and laws designed to prevent and forestall money laundering - whatever that might be! This blog aims to provide a venue for discussion on these and aligned issues, because most of these subjects are so surrounded by disinformation and downright intellectual dishonesty, an alternative mouthpiece is predicated. Please share your views with what is published here from time to time!